Disclosures would increase on subprime credit card fees

Subprime credit cards are issued to customers with bad credit or no credit history. They are sometimes referred to as "fee harvester cards" in the credit card industry. These cards typically carry low credit limits of $250 to $500 and are designed to help cardholders launch or re-establish payment histories. 

However, subprime cards also carry upfront fees that the Federal Reserve board contends are not clearly disclosed to customers. For example, a card with a $250 credit limit may have fees or security deposits assessed at the opening of the account that reduce the available credit to less than $100.

The proposed rule changes to Regulation Z would require creditors to list any fees or deposits in a table if they exceed 25 percent of the minimum credit limit. Creditors would also have to include in the table an example of the consumers' available balance on the credit card after these fees are assessed.  

Chase says the Fed should consider even lower thresholds for disclosure of these fees: "We also believe that the 25 percent threshold should be lowered to 10 percent or 15 percent, to better protect consumers from potentially misleading offers of credit where large portions of the available credit on a new account are taken up by fees before the consumer has the opportunity to use the account ... "

The Woodstock Institute, a Chicago-based policy research organization, recommends the Fed set the threshold as low as 5 percent: "While not curbing most of the very egregious abuses of subprime cards, the proposal may help some consumers become aware of the traps of these cards ... "